Realignment Expectations, Forward Rate Bias, and Intervention in an Optimizing Model of Exchange Rate Adjustment

Peter Isard
Additional contact information
Peter Isard: International Monetary Fund

IMF Staff Papers, 1994, vol. 41, issue 3, 435-459

Abstract: The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the implications for relating realignment expectations, the interest differential, and the risk premium to the state variables that enter the policy objective function, for modeling the bias in using forward exchange rates to predict future spot rates, and for characterizing the effectiveness of sterilized intervention.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.jstor.org/stable/3867435?origin=pubexport main text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:41:y:1994:i:3:p:435-459

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Staff Papers from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().